Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm's chief economist, is a senior fellow at Yale University's Jackson Institute of Global Affairs and a senior lecturer at Yale's School of Management. He is the author of Unbalanced: The Codependency of America and China.

Trump won because there are real problems in the world economy. Mr Roach and other economists have been writing about them for a long time, but governments have failed to act.

Globalization has worked wonders for humankind as a whole, taking millions out of extreme poverty in some countries, giving record profits to big companies and, most importantly, creating a period of peace because of the interdependence of the economies. Sadly, a lot of people on developed countries have been left behind, and governments have not taken care of them. Big companies that are having record profits are not paying taxes, so the benefits they reap from globalization do not move down the chain and are not widely distributed. Instead, investors and executives with ridiculously high paychecks get most of the rewards.

This creates huge inequalities in the system and, understandably, many people in advanced countries are pissed off and want to change the status quo.

As a friend of mine who voted for Brexit said: "I don't know if I will be better or worse, I just want the thieves at the City to live worse". Game theory at it's best

In theory Free Trade leads to optimal benefits for all. The US gets less expensive goods and (eventually) the displaced US workers find other (more productive) work. The last 45 years shows that this is not case when competing with low-cost nations. There are a number of studies that indicate major costs to trade and low-skilled immigration. See: http://www.vox.com/new-money/2016/11/30/13764146/china-imports-trump-sad

We need to follow the Terrain of our economic experience and not the false Map of standard economics. Except under conditions of diminishing returns, which often do not exist free trade does not generate optimal benefits. As noted above, one nation can use its lower costs to dominate selected production processes. This was pointed out by Baumol and Gomory See: https://www.amazon.com/Conflicting-National-Interests-Robbins-Lectures/dp/0262072092/ref=sr_1_5?s=books&ie=UTF8&qid=1473299717&sr=1-5&keywords=Baumol+Trade and http://www.ralphgomory.com/articles-on-trade/ We are on new ground here and Trump is one of the few who recognizes Trade as a problem. Standard economics does not think this is an issue.

The simplist approach is to restructure international trade around Warren Buffet's idea of creating a market for Import Certificates based on US exports. This would automatically balance trade (an Import Certificate based on exports is needed for any Import), provide a rules-based approach (vs. bureacratic), and block massive rent-seeking around Trade Policy. See: https://en.wikipedia.org/wiki/Import_certificates There would probably be a period of phase in to avoid major disruptions. The market should be run on a national basis, if China or Mexico wants to export they have to buy something. Since the US runs an almost 800 Billion dollar trade deficit the disruptions will not be too huge to the US. Given flexible supply chains it should be easy to do import substitution and bring this $800B in production to US soil. We would still have some level of international competition, and more time for the working classes (and the entire nation) to improve their productivity.

US Exports are 13.7% of GNP, imports are around 17%, other nations would compete to maintain their share 13.7% of the US imports until equality is reached. Our exports should not be hurt too much and if they are we can do rapid import substitution and deport illegal workers as needed.

If anything I would argue the opposite: China already handed over the money, but the US can still decide whether to repay or default. They may stop rolling over debt, but the Fed can always step in in that case, which would also drive down the dollar and enhance exports. So holding US debt would gives the US leverage, not the creditor, and yet people always assume the opposite. Can anybody offer an explanation for this?

Peter Navarro understands that not all trade is good. Americans should expect the politically heated debate over the new trade agreement to continue. We must ponder how much of this is about individual governments giving up control and becoming subservient to corporate “efficiency” and the desire of companies to both develop and control future rules.

We should not lose sight of the fact that while free trade is important, fair trade is far more so and should be the main issue. Developing a long-term sustainable economic system that is balanced would contribute to both global cohesion and the world economy. The article below highlights the difference between free trade and fair trade.

Over the last several years the "stop globalization" movement has gained support in developed countries across the world. Currently, the forces against globalization are growing stronger, globalization seems to be a magnet pulling blame for many of the problems we see across the planet.

This polarizing subject has created some rather strange bedfellows and alliances. A discussion of globalization can include several issues such as, immigration and free trade. Other social concerns also feed into the mix, things like global warming, nationalism, inequality, even population growth. The article below delves into this matter.

Mr. Roach, I cannot even pretend to be nice! America's trade policies have been nothing short of disastrous for this nation and its citizens. I truly have to wonder exactly where you are coming from in your article, as it appears that your warning is more to circle the wagons for global elite interests rather than to offer relief for the beleaguered middle class. America's trade deficit has resulted in a hollowing out of her manufacturing base, creation of a perpetual workers' underclass, and a Congress which must now place the interests of our trading partners above those of our citizens. And you well know that these trade imbalances can never be permanent, and must be reversed some day. Why not now, before the USA slides into inescapable Third World status? Maybe a slight "trade war," properly managed, is just what the Doctor ordered as an antidote against our chronic, and potentially fatal, trade illness!

Guess the American way -be they policies, trade & non-trade matters, has gotten U here in the first place. The "leaders" have gotten the lower-income group trapped and will likely get them to follow their bidding. They want to blame others and wish to encourage / guide U to do the same. Wish U well but we gotten to look after the other part of the world too (even if U don't see one).

Thank you. Without going into specifics how unfair the "free" trade with China is, how can continuing of the existing status quo can be of any benefit to US economy in the long run? What, even higher deficit down the road that we need to borrow funds to finance? He points to savings shortfall, and I agree with him that US needs to save more but trade deficit does matter as well and probably even more. You can criticize Trump's approach on how he wants to go about tackling it but don't you dare to tell me that it doesn't matter.

The risks to the US from a trade war are highly overstated. The existence of those massive trade deficits is key evidence that our trading "partners" have much more to lose than we do. "More to lose" that is only compounded by their own domestic considerations. In this day and age, if something is still made in the US for export, its highly likely the same good cannot be effectively produced elsewhere. Not so for the cheap crap China floods us with.

And while a targeted tariff against China might simply chase production to Vietnam, a more general tariff structure designed to compensate for underpriced foreign labor would be far more likely to return production to the United States.

Would prices go up modestly? Sure. But the whole reason so many American families are squeezed is because of a lack of decent manufacturing jobs. A 10% drop in prices is useless if it causes a 20% drop in wages.

What if the U.S. took a page from China's trade policies, and wrote into law all the tariff and non-tariff barriers to trade, many of which are highlighted in this report from the U.S. trade rep's office (just go right to p. 81 of the document titled "China":

https://ustr.gov/sites/default/files/2016-NTE-Report-FINAL.pdf

After piling up a $400 billion trade deficit with China, what possible benefit does the U.S. gain from maintaining the status quo -- i.e., allowing China to pursue an aggressive mercantilist trade policy at the expense of the U.S.? We've obviously gone far beyond the point of diminishing returns we thought would accrue to the world, and the U.S. in particular, following China's ascent to the WTO.

David, are you really saying Chinese manufacturers, software writers and tech companies are not ripping American IP off on a routine basis? The statement on p. 82 just rehashes facts; to wit: "... inadequacies in China’s IPR protection and enforcement
regime continue to present serious barriers to U.S.
exports and investment. China was again placed on th
e Priority Watch List in USTR’s 2015 Special 301
report."

The litany of abuses in software, online and counterfeiting of real goods is beyond dispute (p. 83). Likewise China's industrial policies: "China continued to pursue industrial policies in 2015 th
at seek to limit market access for imported goods,
foreign manufacturers and foreign service suppliers,
while offering substantial government guidance,
resources, and regulatory support to Chinese industries.
The principal beneficiaries of these policies are
state-owned enterprises, as well as other favored domestic companies attempting to move up the economic
value chain. " (p. 84).

All I'm suggesting is the U.S. take exactly the same actions in terms of an industrial policy, sanction the exact same ripping off of IP, etc., and see how long we go without an enormous howl coming from the Middle Kingdom (China, not Egypt).

In the estimate, not "report," that clever "Markets" Aurelius directs us to, pages 91 to 94 make the plausible case that China has erratic and changing regulation of agricultural products. Such regulation bears no relationship whatsoever to American manufacturing jobs.

The first ten pages, 81-91, are concerned almost entirely with american wishes for greater protection, through market restriction, of American film, invention, banking, pharmaceuticals, and "intellectual property." On all of these issues the charge is that China is too free with its market plans.

How about a vision that is compatible with
"Responsible subgroup liberation demands fairness and mutual compensation." ? Visionaries will appear anyway, so it could be time-well-spent to think about a harmless vision.
What I can provide so far is, that I got good reasons to believe, that "best-for-all" moral idealism will recover in some years or decades, and that this might depend on the grade of messiness of the intermediate period.

Thanks to Mr. Roach for a great article that help me understand just how catastrophic Trump's economic policies might be for the world economy. I was confused by one point though. It is a minor one that in no way lessens his general point. He writes that the Smoot/Hawley tariff led to a "...catastrophic global trade war which many believe turned a serious recession into the Great Depression." I just read a couple of Krugman columns where he convinced me that "it just ain't so". Again, a minor point in the argument.

That's what Barry Eichengreen writes in his book Hall of Mirrors that Smoot Hawley act raised tariff on dutiable imports from 38% to 45% but this effect was small since imports were only 5% of USD gross national product in 1929 and two-thirds of imports were subject to no duty at all. As per estimates of Douglas Irwin Smoot-Hawley reduced US incomes by 0.1% of US GDP. But one needs to keep in mind few differences one is % of imports were much lower second tariff was applied on one-third of imports and tariff was raised by just 7%. But he also mentions that some of the spending directed towards imports were substituted by domestic goods which reduced purchasing power of consumers as they were higher priced so net effect was still negative but I think psychological effects could be much higher resulting in slow down

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